1. A monopolist faces the following demand curve: P = 120 - .02Q . The firms cost function is given by C = 60Q + 25; 000: Assume that the firm maximizes profits.
(a) What is the level of production, price, and total profit per week?
(b) What will be the level of production and price if the market was perfectly competitive?
(c) What is the welfare cost of monopoly?
(d) If the government decides to levy a tax of $14 per unit on this product, what will be the new level of production, price, and government tax revenue?
(Hint: Suppose initially that consumers must pay the tax to the government.)